Correlation Between Structured Products and Credit Enhanced

Can any of the company-specific risk be diversified away by investing in both Structured Products and Credit Enhanced at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Structured Products and Credit Enhanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Structured Products Corp and Credit Enhanced Corts, you can compare the effects of market volatilities on Structured Products and Credit Enhanced and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Structured Products with a short position of Credit Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Structured Products and Credit Enhanced.

Diversification Opportunities for Structured Products and Credit Enhanced

-0.04

Correlation Coefficient

Structured Products  Credit Enhanced

Good diversification

The 3 months correlation between Structured and Credit is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Structured Products Corp and Credit Enhanced Corts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credit Enhanced Corts and Structured Products is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Structured Products Corp are associated (or correlated) with Credit Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credit Enhanced Corts has no effect on the direction of Structured Products i.e., Structured Products and Credit Enhanced go up and down completely randomly.

Pair Corralation between Structured Products and Credit Enhanced

Considering the 90-day investment horizon Structured Products Corp is expected to generate 1.74 times more return on investment than Credit Enhanced. However, Structured Products is 1.74 times more volatile than Credit Enhanced Corts. It trades about 0.01 of its potential returns per unit of risk. Credit Enhanced Corts is currently generating about 0.01 per unit of risk. If you would invest  2,907  in Structured Products Corp on December 29, 2024 and sell it today you would earn a total of  8.00  from holding Structured Products Corp or generate 0.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Structured Products Corp  vs.  Credit Enhanced Corts

Structured Products Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Structured Products Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Structured Products is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Credit Enhanced Corts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Credit Enhanced Corts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Credit Enhanced is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Structured Products and Credit Enhanced

The main advantage of trading using opposite Structured Products and Credit Enhanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Structured Products position performs unexpectedly, Credit Enhanced can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Credit Enhanced will offset losses from the drop in Credit Enhanced's long position.

The idea behind Structured Products Corp and Credit Enhanced Corts pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.